VIX, gold, oil in retreat as investors assess Ukraine plane crash

We\’re still in the early stages of the fallout from the tragic downing of a Malaysia Airlines passenger jet over eastern Ukraine. But investors on Friday largely appeared to be looking beyond the incident after a brief rush to safe assets, such as gold and Treasurys, in the immediate aftermath of the incident.

Strategists sound doubtful the incident will mark the demise of a long-running bull market that\’s driven U.S. stocks to a string of record highs.

\”This limited market response made some sense. It does not seem unreasonable to conclude that the incident was a one-off mistake and that it might even help to bring the crisis in Ukraine to an end by focusing minds on the need for a peaceful resolution,\” said Julian Jessop, economist at London-based Capital Economics.

That said, Jessop adds the caveat that the situation could deteriorate as the international spotlight swings back to Moscow\’s role in backing pro-Russian separatists in Ukraine. Pressure for tougher sanctions against Moscow will likely increase, which could lead to a \”tit-for-tat\” series of economic retaliations that could endanger the euro zone\’s fragile recovery and drive up prices for commodities, including energy, metals and wheat.

For now, remarks by President Barack Obama holding out the threat of tighter sanctions haven\’t caused any major ripples in markets. Here\’s where we stand:

VIX: The CBOE VIX index
, widely known as Wall Street\’s fear gauge, surged more than 32% on Thursday, its\’ biggest one-day gain since April 2013. The index fell 2.24 points, or 15.4%, Friday to 12.30, which is very low by historical standards. A steady flow of liquidity from the Fed and other major central banks has been credited with — or blamed for — a prolonged period of very low volatility that has seen stocks and other assets perceived as risky rise ever higher as investors seek out yield.

Writing over at StockTwits, technician Ryan Detrick makes some important points about Thursday\’s VIX spike. He notes that the VIX has seen a daily jump of more than 30% just 22 times since 1990. On average, on days when the VIX jumps by more than 30%, the S&P 500 has fallen an average of 3.53%. That means Thursday\’s S&P 500 decline was the smallest ever on a day when the VIX has jumped more than 30%.

What to make of the relatively muted reaction by stocks? Detrick says it reflects the e fact that the VIX jumped from a historically low level. In other words, when talking about the VIX, it\’s better to talk about the absolute change rather than the percentage move.

Gold: August gold futures
jumped on Thursday but gave back some of the gains Friday, slipping $7.50, or 0.6%, to close at $1,309.40 an ounce. Gold, like Treasurys, often benefits from kneejerk safe-haven buying during bouts of geopolitical turmoil. It\’s worth noting that gold ended Friday with a weekly loss of 2.1%.

Treasurys: U.S. government bonds are also popular havens. Such flows are often concentrated at the short end of the market, but can have an impact along the curve. The yield on the 10-year note
dipped below 2.50% on Thursday and neared its lowest level of the year. Treasury prices, which move in the opposite direction of yields, gave back some gains on Friday, pushing the 10-year yield up by around 43 basis points to 2.482%.

Oil: Crude futures gained some ground Thursday on fears escalating tensions could disrupt flows, but slid on Thursday. August Nymex crude futures
fell 26 cents, or 0.3%, to $102.93 a barrel. Oil has retreated by around 2.3% since the end of June as worries over a Sunni-led insurgency in Iraq faded and investors turned their attention to bearish supply developments.

Stocks: The plane crash and Israel\’s decision to begin a ground assault in Gaza were blamed for the S&P 500\’s
1.2% decline on Thursday. In keeping with the low-volatility regime that has dominated trading, the move broke a 62-day streak of sub-1% moves in either direction — the longest such string since 1995, according to technician Jonathan Krinsky of MKM Partners.

U.S. stocks were back in the green on Friday, with the S&P 500 rising 1% to 1,974.22, while the Dow industrials
rebounded 0.7% to 17,100.18. European equities ended mostly lower, adding to a Thursday slide, while Russian stocks fell for a fifth day.

Story Conversation

About The Tell

The Tell is MarketWatch’s fast and engaging look at trends and themes in the day’s markets. Drawing on our reporters, analysts and commentators around the world, as well as selecting the best of the rest online, The Tell is all about the pulse of the markets through news, insight and strategic information to help you make the best investing decisions. Got a tip? Tell us at TheTell@MarketWatch.com